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      A Wee Global Peep            

Omkar Goswami


We are in February 2014, and it is time to look at how key countries and zones in the world are expected to perform for the calendar year.

The January 2014 update of the World Economic Outlook of the International Monetary Fund (IMF) suggests an uptick in global GDP growth from 3 per cent in 2013 to 3.7 per cent in 2014. Through most of the past decade, whenever there was an upward movement in global GDP growth, you could be sure that it was driven by the emerging economies. Not so this time.

The advanced economies are expected to up their real GDP growth by 90 basis points — from 1.3 per cent in 2013 to 2.2 per cent in 2014. In contrast, the emerging economies, while growing faster, have been predicted to post GDP growth of 5.1 per cent in 2014, which is only 40 basis points higher compared to 2013.

The problem lies with laggard growth increments among the BRIC nations. Though the fastest growing by far, China is forecast to de-grow from 7.7 per cent in 2013 to 7.5 per cent in 2014. Brazil’s growth is expected to remain flat at 2.3 per cent. While Russia is anticipated to grow from 1.5 per cent in 2013 to 2 per cent in 2014, it is still well below par.

India looks better in comparison: up from 4.6 per cent in 2013 to 5.4 per cent this calendar year. That is good news. However, India does not carry enough heft to substantially lift the growth of emerging markets, unless it is accompanied in good measure by China.

Thankfully, there are two distinct pieces of good news. The first relates to the US, where almost all indicators suggest that the country is on the mend. The unemployment rate has been declining and finally went below the 7 per cent mark to 6.7 per cent in December 2013. The last time it was at this level was 61 months ago. US industrial production has grown by 3.7 per cent between December 2012 and December 2013. It was the fifth consecutive monthly increase; and for the fourth quarter of 2013 (October-December), industrial production grew at an annual rate of 6.8 per cent — the largest quarterly increase since the second quarter of 2010. At 1.5 per cent, consumer price inflation has been lower than before; the fiscal deficit of the federal government, once running at over 11 per cent of GDP, is now down to 4.1 per cent; housing prices are firming up; and the consumer confidence index has bounced back.

The second good news is probably even better for the global economy. It has to do with the Euro Zone which, except for Germany and the North Atlantic nations, was almost a basket-case category some 12 to 18 months ago. Not so today. Although Euro Zone growth for 2013 will still be in negative territory (-0.4 per cent), the third quarter numbers showed a distinct upturn which should continue in the fourth.

The World Economic Outlook forecasts 1 per cent growth for the area in 2014, with Germany leading the pack at 1.6 per cent, followed by France at 0.9 per cent. Most significantly, both Italy and Spain are expected to get out of the red — the former from -1.8 per cent in 2013 to 0.6 per cent 2014, and the latter from -1.2 per cent to 0.6 per cent.

These are trivial growth rates by Asian standards, but substantial for nations that were floundering without hope. Moreover, the Euro Zone is again seeing a rise in industrial output led by Germany; a healthy current account surplus; a mild drop in unemployment rates; and a sharp reduction in fiscal deficit to 2 per cent of GDP.

There is an economic recovery in sight. Therefore, we in India should not face too many headwinds. If we don’t grow sufficiently, the fault will lie upon us, and not the big bad world. We should aim for 5.5 per cent, and hope for 6.

Published: Business World, February 2014


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